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Fraud*
According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

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Saturday, April 21, 2012

How Goldman Sachs Affects the Making of Financial Rules

On this blog we have been following the course of regulators who are creating new rules based on Dodd-Frank which are supposed to correct and help prevent another financial failure like the one of 2008.  However, it is taking a very long time to make the new rules and the banks have lobbied strenuously to alter or prevent rules that will reduce their profits.

Over-the-counter derivatives were part of the problem that brought about the Great Recession, but the banks are doing a stellar job of trying to change or delay rules that they do not like.  Even though the chairman of the CFTC, Gary Gensler, may be as honest as the day is long, he did work for Goldman Sachs and has members on his commission who have criticized the rule-making process at CFTC

The following article highlights some of the problems with making rules that regulate the financial system:

SEC, CFTC Retreat On Swap Dealer Regulation
By Mark Gongloff- HuffPost Business

Corporate America, with help from the Obama administration, has struck yet another blow against the scary financial regulations it claims will hurt the economy.

On Wednesday they undercut new regulations on derivatives, which the detail-obsessed among us might point out didn't just hurt the economy but nearly destroyed it. Just a few years ago.

It's just the latest in a growing string of defeats and surrenders by regulators to the same financial industry that helped nearly destroy the economy, and needed massive bailouts as a result. Just a few years ago.

Under heavy pressure from the energy industry and other corporate interests, the Commodity Futures Trading Commission and the Securities and Exchange Commission are retreating from a plan to regulate many reaches of the U.S. trade in financial derivatives known as swaps, including the credit derivatives that nearly brought down the financial system.

The CFTC and SEC voted on Wednesday to decide just who, exactly, should be considered a "swap dealer" in this market. Dealers will be subjected to greater regulation and oversight. Non-dealers get a pass.

Originally these regulators wanted to say that anybody who handled less than $100 million in swaps per year was not a dealer and thus would be exempt from regulatory oversight. This arbitrary number was far, far too low, cried energy companies and other players in the swaps market. After careful consideration, they thought another arbitrary number, say $3 billion, or maybe $8 billion, would be more reasonable.

These companies argued that they dealt in many billions of dollars in swap trades each year -- $3 billion to $8 billion, to be ridiculously precise -- just to hedge their risks of doing business. To subject their trades to the scrutiny of regulators would impose terrible costs that could very well hurt the economic recovery, for goodness' sake.
Read the whole article here 

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